J.P. Morgan’s 2025 Long-Term Capital Market Assumptions delivers timely insights on recent market complexities. The 29th edition of the historic report reveals the dawn of a “new economic era” that is set to deliver higher growth, strong capital investment trends, and higher interest rates.
As the global financial landscape evolves, the interplay between higher policy rates and economic growth continues to shape investment returns. Current projections indicate strong bond returns, reinforced by elevated interest rates, while robust economic growth supports equity returns. The latest report suggests that the return forecast for a USD global 60/40 stock-bond portfolio stands at 6.4%, a decline of 60 basis points (bps) from last year. However, this projection aligns closely with the long-term average, suggesting stability amid fluctuations.
Karen Ward, Chief Market Strategist for EMEA at J.P. Morgan Asset Management, added “The global economy is entering a new era marked by higher fiscal spending, increased capital investment, and stronger economic growth. While inflation may be slightly higher than pre-pandemic levels, the outlook remains optimistic with rates normalizing and investment picking up.”
In recent months, trends point to a shift in government policy from austerity measures to fiscal activism. For this transition to effectively stimulate real growth without merely exacerbating inflation, J.P. Morgan’s advisers outline that investments must focus on enhancing supply rather than just increasing demand. This may involve necessary labor market reforms and carefully considered migration policies to mitigate risks associated with higher inflation. However, it is important to note that elevated volatility in both the bond market and currency exchange rates appears inevitable.
Furthermore, there is a growing trend toward economic nationalism, which, while stopping short of complete deglobalization, contributes to heightened inflation volatility. This environment underscores the importance of assets that exhibit a positive correlation with inflation, such as commodities and real assets, which can offer both compelling returns and diversification opportunities.
Looking ahead to the next decade, the rise of AI and automation is expected to supercharge the broader economy, thereby bolstering corporate earnings. The report projects a potential annual boost of 20 bps to growth in developed markets attributed to AI—a figure that may be conservative given the technology’s rapid advancement. Ultimately, advisers at J.P. Morgan anticipate that AI will enhance total factor productivity, applying downward pressure on inflation rates.
Investors will need to navigate a range of risks, particularly those arising from geopolitical tensions that dominate current headlines. Nevertheless, the 2025 Long-Term Capital Market Assumptions (LTCMAs) present an optimistic outlook. As investment levels rise and interest rates stabilize, we foresee the emergence of a healthy—and potentially buoyant—economy that will serve as a strong foundation for asset markets in the years to come.
